Monday, January 17, 2011

In a consumer credit action, Nicholas M. Moccia, Esq., of counsel for the Law Offices of Robert E. Brown, P.C., prevailed against Samserv process server, Michael Mosquera, during a traverse hearing in the Supreme Court, Kings County. The judicial hearing officer in attendance found that service of process had not been properly effectuated in an action brought by Plaintiff Household Finance Corporation III.

Of particular note was an apparently false affidavit of service documenting an attempt at service on an unidentified female whose physical description was inconsistent with that of any member of the Defendant's household. Specifically, the affidavit of service indicated that a female 14-20 years old with brown hair was served at the Defendant's household at 8:40 a.m. on Saturday morning. The Defendant resides with his 40 year old wife who has black hair, his 8 year old son and 5 year old daughter. The Samserv process server admitted to having his license revoked by the Department of Consumer Affairs and was unable to demonstrated that he was licensed, as required, at the time he purportedly served the Defendant. Interestingly, Samserv and Michael Mosquera are named defendants in a federal class action RICO suit wherein it is alleged that they engaged in unfair debt collection practices and "sewer service" at the expense of thousands of unwitting consumers. See Sykes v. Mel Harris and Associates, 09 Civ. 8486; see also previous post with NYLJ article dated January 4, 2011, regarding the same.

Consumers charging a law firm and two other entities with a scheme to fraudulently obtain more than 100,000 default judgments in state court have prevailed in their bid to overcome a motion to dismiss in federal court.

Second Circuit Judge Denny Chin, a former Southern District judge sitting by designation, refused to dismiss claims alleging the use of "sewer service," a process involving the intentional failure to serve a summons and complaint followed by the filing of a phony affidavit attesting to service. The debtor, who has no knowledge of the process, fails to appear and defaults.

The term "sewer service" is named after the practice of throwing the summons and complaint into the sewer outside of a defendant's home and claiming to have effectuated service.

Plaintiffs charged the "massive scheme" was perpetrated by a debt-buying company, Leucadia National Corp.; law firm Mel S. Harris and Associates of 5 Hanover Square, which engaged in debt-collection litigation on behalf of Leucadia and its subsidiaries; and Samserv Inc., a Brooklyn-based process serving agency.

The plaintiffs claim that the Harris law firm and Leucadia joined to purchase debt portfolios and begin debt collection en masse, filing 104,341 debt collection actions in New York City Civil Court between 2006 and 2008, and hiring Samserv to serve process. In all, the plaintiffs allege, more than 90 percent of the targets defaulted because they were not actually served.

Once a consumer fails to appear, Leucadia and Mel Harris provide proof of service, proof of additional mailed notice and an "affidavit of merit" swearing to their personal knowledge of facts substantiating their claims.

"Leucadia had limited proof to substantiate its claims because it typically did not purchase documentation of the consumers' indebtedness to the original creditors," Judge Chin said. "Nonetheless, the Mel Harris defendants' 'designated custodian of records,' Todd Fabacher, signed the vast majority of the approximately 40,000 affidavits of merit they filed each year."

Mr. Fabacher had to aver to personal knowledge that the debt was due and owing, Judge Chin said, and that means he would have had to issue 20 affidavits per hour or "one every three minutes," during the course of an eight-hour work day.

Judge Chin said that two of the eight named plaintiffs had statute of limitations problems, but the statute in their case was "equitably tolled" because the "defendants deprived them of notice of their debt collection actions."

The Mel Harris defendants, which included the law firm, its principals and affiliated individuals, had argued that the Fair Debt Collection Practices Act does not prohibit the filing of debt collection actions and affidavits of merit.

False Affidavits Claimed

But Judge Chin said the plaintiffs alleged far more than simply the claim that the law firm defendants lacked "physical evidence of the debt."

They also allege, he said, "that they knowingly authorized defendant Fabacher to file false affidavits of merit—misleading both the Civil Court and consumer-defendants—to secure default judgments that enabled them to freeze bank accounts, threaten to garnish wages, or pressure individuals into settlements."

Judge Chin dismissed racketeering claims against five individual process servers, Mel Harris manager David Waldman and two officers of Leucadia or its subsidiaries.

He also rejected the plaintiffs' claim that there were three distinct racketeering enterprises. Nonetheless, Judge Chin found that the complaint properly alleged a single racketeering enterprise.

The defendants had argued that the plaintiffs' pleadings fell short on the racketeering conspiracy claim, and moved for dismissal.

But Judge Chin said "the pleadings sufficiently allege substantive RICO violations and plausibly establish an agreement among the defendants."

He denied the Samserv defendants' motion to dismiss racketeering conspiracy claims with respect to all Samserv defendants, including five individual process servers, and all other defendants. The lone exception here was his dismissal of racketeering conspiracy claims against Mr. Waldman and the two Leucadia officers.

Judiciary Law Claim

Judge Chin then ruled that, under General Business Law §349, which governs deceptive acts or practices, the plaintiffs' claims were not moot even though the default judgments have been vacated by state courts or by agreement with the defendants.

Finally, he refused to dismiss the claim against the Mel Harris defendants under Judiciary Law §487, under which an attorney can be charged with a misdemeanor and be liable for damages when he engages in "any deceit, or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party."

Monday, January 10, 2011

The Massachusetts Supreme Court ruled Friday that U.S. Bank and Wells Fargo did not have the legal right to foreclose on two homes in the state, invalidating the lenders’ seizure of the properties and raising further questions about foreclosure documentation – this time related to the proper transfer of ownership on mortgages packaged as securities

Analysts warn that the decision could have far-reaching implications on loans that have already been liquidated, those in the process of foreclosure, and sales of foreclosed bank-owned homes.

In a unanimous 6-0 ruling, the Massachusetts Supreme Court upheld a lower court’s decision that U.S. Bank and Wells Fargo did not have the proper documentation to prove that they owned the mortgages at the time of foreclosure.

U.S. Bank and Wells Fargo were not the originators of the mortgages, but served as trustees of the two separate securitization trusts holding the loans. Interestingly enough, both foreclosures – U.S Bank’s on the mortgage of Antonio Ibanez, and Wells Fargo’s on the mortgage of Mark and Tammy LaRace – occurred on the same day, July 5, 2007. The lenders then turned around and bought each of the respective homes themselves at the foreclosure auction.

At the core of the issue is that the lenders both failed to ensure the assignment of the mortgage notes were executed and recorded in the registry of deeds before the dates of the foreclosure sales.

Justice Robert J. Cordy wrote in a court opinion, “…what is surprising about these cases is not the statement of principles…regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.”

He went on to say, “There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order.”

The Supreme Court rejected the two banks’ requests to apply the ruling only to future cases, which could have implications for thousands of foreclosures in the state that have already been completed.

Wells Fargo said in a statement, “Wells Fargo believes the court’s ruling does not prevent foreclosures on loans in securitizations. The court simply set forth a standard legal process that mortgage servicers must follow in Massachusetts.”

The analysts at Barclays Capital described the case as “problematic for banks and non-agency investors, since it overturns completed foreclosure sales.”

They say the ruling could raise title issues in the minds of the potential buyers of REO properties, could further reduce prices on distressed sales, and slow foreclosure to REO rolls and liquidations.

Clients frequently ask whether they need a social security number to file bankruptcy.

The answer is no.

Let’s explain this. Nothing in the bankruptcy code requires that you have a social security number to file bankruptcy. Yet, the official bankruptcy forms ask for your social security number. Don’t use somebody else’s number. Don’t use a number you have made up. Don’t use a number unless it was issued by the Social Security Administration.

If you don’t have a social security number, you still want your taxes addressed properly, so use an individual tax identification number or ITIN. You get this from the Internal Revenue Service at www.irs.gov

When you file a bankruptcy petition, you’ll be asked to sign a declaration about your social security number.

You can indicate one of the following choices:

You have one – so provide it

You have an individual tax identification number – so provide that

You don’t have one – if you don’t just say so.

The worst choice is to make a false statement about your social security number in your bankruptcy petition. Never, under any circumstances, do that.

People worry that their immigration status will be harmed by bankruptcy. That’s almost never the case. On the other hand, a false statement about a social security number is a crime. That can only hurt your immigration status.

Foreclosure expert Robert Brown, Esq., of the Law Offices of Robert E. Brown, P.C., opines that the apparent dip in foreclosure filings in the New York metro area for 2010 was more a function of stricter legal and procedural requirements rather than sign of economic improvement. "I think in 2011 there's going to be a huge spike once [banks and their lawyers] get their arms around what they're going to do," said Robert E. Brown, a Staten Island and Manhattan-based foreclosure defense attorney. [read more]

STATEN ISLAND, N.Y. -- Foreclosure filings on Staten Island last year dropped sharply from 2009, but defense lawyers and others say the numbers represent a misleading lull, as banks, under fire over the integrity of the foreclosure process, regroup.

Staten Island Advance/ Bill LyonsNilda Martinez and Ruben Martinez stand in front of their home on Coursen Place in Clifton with their attorney Robert Brown, right. Brown was able to stop foreclosure and is countersuing the bank.

Many expect an avalanche of new filings this year to negate the 22 percent dip from the 2,361 foreclosure filings in 2009 to the 1,846 filings in 2010 recorded in the Richmond County Clerk's office.

"I think in 2011 there's going to be a huge spike once [banks and their lawyers] get their arms around what they're going to do," said Robert E. Brown, a New Dorp-based foreclosure defense attorney.

"People aren't paying their mortgages. There's just as many people going into default as did six months ago. It's just that the banks are being more careful in filing suit."

Valerie Wonica of Wonica Realtors & Appraisers agreed.

"I don't think it's a trend," she said of last year's decrease in filings. "I think a lot of it's in the pipeline. [Banks are] making sure all of their paperwork is being done correctly."

Brown said some banks stopped new foreclosure filings late last summer in response to probes by attorneys general around the country.

In numerous cases, there were questions about the actual ownership of the mortgage being foreclosed on, said Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George.

"A huge, huge issue is who owns the mortgage, and can they prove who owns it," she said, noting that mortgage securities were often improperly bundled and passed from one bank and servicing company to another.

In other instances, affidavits attesting to the foreclosure documents' accuracy were signed by bank representatives who never looked at them, she said.

Brown said employees of some banks signed hundreds of affidavits each day without checking records, a process called "robo-signing."

STRICTER FILING PROCESS

In October, Jonathan Lippman, New York state's chief judge, put the onus on banks' lawyers to ensure proper foreclosure filings.

He required that attorneys sign an affidavit verifying the documents' accuracy. The lawyer must also name the person at the lending institution who supplied the information and certify his own examination of the papers.

"I think a lot of lawyers are skittish to do it," said Brown, adding that Staten Island judges are vigorously enforcing the mandate.

Foreclosure filings in the borough dipped to 78 in December, compared to 224 in December 2009. That represented a 65 percent decline. There were 81 foreclosure filings in November, down 61 percent from the 209 filings in November 2009.

According to published reports, foreclosure filings in mid-December also dropped sharply in counties that have high filing volumes, including Brooklyn, Queens and Suffolk County.

Brown believes that's just the calm before the storm.

"All they're doing is deferring the filings they'd normally be doing now," he said, adding that some discontinued foreclosures will be re-started.

While Brown expects foreclosure filings to jump this year, Ms. Becker said it's hard to say for sure.

Many foreclosures are the result of predatory lending practices, and those types of mortgages declined heavily in 2007 and 2008 with collapses in real-estate and financial markets, she said.

As a result, new mortgage applications slowed, and more current foreclosure filings are primarily due to homeowners' unemployment, said Ms. Becker.

The economy has shown some signs of life, yet the national unemployment rate remains at more than 9 percent -- up from about 5 percent in 2008.

Some experts, like Jonathan Peters, professor of finance at the College of Staten Island, say the country needs to create 8 million jobs just to match the ones it lost in the latest recession. That's not likely to happen soon, they say.

In the meantime, bankruptcy filings are up significantly on Staten Island.

HELP FOR HOMEOWNERS

Still, the news isn't all bad for beleaguered homeowners.

Eligible residents can obtain mortgage modifications through the federal Home Affordable Modification Program (HAMP). Ms. Becker said the process has "gotten better" and likely accounts for some of the dip in foreclosure filings, although some cases still drag on for months.

"It's positive any time foreclosures go down," said Sandy Krueger, chief executive officer of the Staten Island Board of Realtors (SIBOR). "Certainly, there's a lot of re-financing going on, so people had an opportunity to lower their payments and stay in their homes."

Brown, however, maintains HAMP isn't working as well as it should.

"I think in a lot of ways it's a terrible failure," he said. "I don't think the banks are efficiently set up to deal with the problem."

And if cash-strapped borough residents can't modify their mortgages, there's going to be even more pain in store this year, he said.

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